Retool Your Terms Before You Reboot Your Business
August 27, 2021

You’re probably itching for business to resume — looking for any indication life will return to normal and clients will call once again, and you can finally get back to running your business.

Business will return, but it won’t necessarily return to normal. At least, it shouldn’t.

Whenever “normal” life reboots, we need to be prepared to do a few things differently. Particularly, we need a new approach to how we structure our pricing, terms, and cancellation policies.

Now is the time to retool your policies.

When your existing customers call to check in or new clients start to inquire about future projects, everyone will be focused on risk — and you need to be prepared with win-win strategies that protect everyone.

Sound impossible?

It’s not… as long as you proactively plan your terms.

The show will go on! Here’s how innovative leaders are choosing to get ready.

Many companies will be tempted to fall into one of two extremes:

  1. Preserve their pricing and model (with only minor modifications)
  2. Price aggressively and gain market share

To be blunt, your old model won’t work with the new market. Attempts to protect the status quo will backfire, and many of you can’t afford to lower your price and keep your business sustainable.

Fortunately, there’s a third option: The Middle Ground.

How To Leverage Your Middle Ground

The middle ground is a good place to be IF you learn how to leverage it. The middle provides you the opportunity to connect the old way of doing things to our new reality. With this approach, you can show clients how you’re making changes to benefit everyone.

Great deals are made in the overlap between what the customer wants and what the seller wants.

Sellers: You want money in-hand AND security. You don’t want to return deposits.

Customers: Your customer wants a service that’s worth their money. They don’t want to pay for something they can’t use if they have to cancel.

The goal is to figure out how it’s worth it to the customer to give you money, how it’s worth it for you to accept the money, and how to make the transaction work for both sides.

This requires making strong, mutually beneficial choices on pricing and terms.

Focus on terms that benefit you AND your client.

  • Start by putting the customer first. Reduce their cash at risk by requiring smaller payments over time.
  • Then, reduce your fiscal risk by securing payment for work as it is performed. Don’t ask for money for work you’re eventually going to do. Ask for payment as you complete incremental components of the job.

Both parties are trying to reduce risk. While it may seem difficult to offer prices and policies that accommodate both client and consumer risk reduction, it is possible.

Here are three payment models you can consider implementing as you restructure your pricing to best accommodate the new competitive future that lies ahead.

1. Timed Value Deposit

This is a variation on what we’ve traditionally done with a percentage-down approach, but percentage-based deposits need to be left in the past. They’re weak and susceptible to recall and renegotiation. They feel unsubstantiated to the customer.

In a timed value deposit model, we connect deposits to tangible work and deliverables. Your standard pricing will have a portion of nonrefundable amounts to reserve the capacity the client needs. Essentially, they’re pre-paying to have the equipment set aside for their use, making this deposit for the equipment nonrefundable.

The work is then executed by prepping the order. As the work is done, cost is incurred and the buyer needs to pay.

In this model, it’s crucial to connect each payment to the specific job component in terms the customer can understand. The closer the money owed correlates to the work you’ve done, the less push back you’ll get.

If you want to give your customers more choice in refunds, you can offer different pricing tiers that offer lower prices for higher nonrefundable amounts. Hotels use this approach regularly — they give multiple pricing tiers with varying levels of refunds. Tier your own pricing with this in mind.

2. Pay-As-You-Go Model

In the pay-as-you-go model, we break the project into each value-added component. The customer makes go/no-go decisions by making payments for work along the way. At any point, they can take what they’ve paid for (the design, the pitch, etc.), shop it, and have someone else deliver it.

A pay-as-you-go policy might look something like this:

Rather than making these items value-adds (or free), we put a number to each component of the project. It’s not more money for the job — it’s moving money around. It shows the customer exactly what they’re paying for. Then, we group payment dues in a way that aligns with the start date of each component.

Customers benefit from this model because they risk smaller amounts in logical increments. Plus, they don’t have to worry about having the money upfront — especially if their cash flow is low.

You reap benefits as you’re paid upfront, you have no fiscal risk on completed work, and it’s harder for someone else to quote on your design.

3. Progress Billing

The progress billing model is commonly used in other industries — particularly construction — but we don’t often see it in live events. With progress billing, the customer commits to the entire project, like a full-service design production. They pay at the completion of each stage.

For example, you might collect payment at each of these progress points:

  1. Completion of design
  2. Start of project management
  3. End of project management
  4. After producing a video
  5. After generating slides

Progress billing relies on a series of bills and payments. Both parties continually audit each other and the business managers constantly communicate. Typically, there’s also a percentage of the payment held back (potentially in escrow) that isn’t released until final sign-off.

While this approach can be legalistic and take a lot of administration, it holds up well in conflict resolution that an escrow agent can help mediate.

Which System Should You Use?

The best model for you depends on the kind of business you have. If you have various aspects to your business, you may even need a different system for each.

Cancellations are normal, but with a well-implemented model, they become less of a problem. Get clear on what you do and use the right terms and conditions for those types of projects.

About Tom Stimson
Tom Stimson MBA, CTS is an authority on business and strategy for small- to medium-sized companies. He is an expert on project-based selling and a thought leader for innovative business processes.
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